Several municipalities in central New Jersey, including Hamilton Township in Mercer County, are in the process of completing local property tax revaluations for the 2016 tax year. If the revaluation is completed in 2015, every tax assessment in Hamilton Township will change next year. The new assessment will form the basis for a property owner’s real estate tax bill for 2016 and subsequent years as well. It is important that property owners understand the difference between their old assessment and new assessment, and the right to challenge the assessment if it is in excess of the fair market value of the property.
The purpose of a revaluation program is for the municipality to update all tax assessments in order to spread the tax burden equitably within a municipality. This often becomes necessary as market conditions within a municipality change over time. Although a revaluation will almost certainly result in an increase of your tax assessment, it does not mean that your property tax bill will increase. Your tax bill could increase, decrease or stay the same. The reason for this is a result of the common level ratio that applies to tax assessments in non-revaluation years. The common level ratio is a formula that is used to compare the true market value of the property to the assessment imposed on the property.
To help illustrate how the common level ratio functions, below are three examples:
1. Fairly Assessed Property. If the common level ratio in a municipality is 50 percent, a home assessed at $200,000 has an imputed true market value of $400,000 ($200,000 ÷ 0.5). If the tax rate in the municipality is 4 percent, the tax payer will be responsible for $8,000 in taxes that year ($200,000 x 0.04). If the home is indeed worth $400,000, then this is a fair assessment.
2. Over Assessed Property. However, if the fair market value of the home is $400,000, but the assessment imposed is $250,000, the property is being treated as a $500,000 home ($250,000 ÷ 0.5). The tax payer in that scenario would be liable for $10,000 in taxes per year. ($200,000 x 0.04). Thus, the tax payer would be over assessed and paying $2,000 per year more than he should.
3. Under Assessed Property. To the contrary, if the fair market value of the home is $400,000, but the assessment imposed is $150,000, the property is being treated as a $300,000 home ($150,000 ÷ 0.5). The tax payer in this example would be liable for $6,000 in taxes per year ($150,000 x 0.04.) Therefore, the tax payer would be under assessed and paying $2,000 per year less than he should.
A revaluation attempts to correct the unfairness shown in the three examples by bringing each property in a municipality to 100 percent of true value. Thus, after a revaluation, the three hypothetical property owners should all be assessed at $400,000. Since the ratio is now 100 percent, the tax rate should drop from 4 percent to 2 percent, and each owner would be responsible for $8,000 a year in taxes ($400,000 x 0.02).
The net effect of a revaluation is that some property owners will realize that they have been under assessed for years if their tax liability increases. On the other hand, some property owners will realize that they have been over assessed for years if their tax liability decreases. Finally, other property owners will appreciate that their tax assessment was correct before the revaluation as their tax liability stays the same.
In the end, it is important for property owners in municipalities that are undergoing revaluations to understand this process. If a tax payer is upset with the assessed value imposed on the property, he or she has the right to attempt to negotiate a reduction; file an appeal with the County Board of Taxation or file an appeal directly with the Tax Court under certain circumstances. Although individuals have the ability to appeal their assessment without a lawyer, a lawyer can be retained. Additionally, properties that are owned by entities (e.g., corporations and limited liability companies) must retain counsel if they wish to appeal their assessment.
Stark & Stark is a full service law firm with over 100 attorneys throughout New Jersey, Pennsylvania and New York, and which counsels commercial, industrial and residential property owners who are seeking to lower their tax assessments. Marshall Kizner, Esq. can be reached at 609-219-7449 or firstname.lastname@example.org.